Albemarle stock has rising large players volume as institutional investors increased their positions by 0.93% over the previous 3 months.

The world’s largest producer of lithium is the United States. Three of the largest U.S. mines are located in Silver Peak, Nevada, and Kings Mountain and Bessemer City, North Carolina.

Lithium is one of the hottest elements on the periodic table. Lithium is used in batteries, making them much lighter than lead and sulfuric acid batteries. They also reduce the use of toxic lead and cadmium. Lithium batteries are used in products such as watches, microcomputers, cameras, small appliances, electronic games, toys, and many kinds of military and space vehicles.

Realizing just how essential lithium is to the U.S. economy, President Trump, in late December 2017, signed an executive order directing the relevant federal agencies to develop a strategy to reduce the United States’ reliance on foreign sources of “critical minerals” that are used to make products deemed essential to our country’s economic and national security. Lithium was named as one such mineral, as it’s crucial for producing the lithium-ion batteries that power electric vehicles, consumer electronic gadgets, and energy-storage products. The impetus for the executive order was a report by the U.S. Geological Survey that concludes that foreign countries provide at least 50% of our total needs for 21 out of 23 critical minerals, including lithium. Most alarming was how the report detailed just how dependent we are on the Chinese to supply many of these minerals.

The world’s largest lithium producer, North Carolina-based Albemarle.

There’s just one active commercial lithium mine in North America: a brine mine in Silver Peak, Nevada, which is owned and operated by Albemarle and was the first lithium brine mining operation in the world.

China’s Push Of EV Vehicles For a Cleaner Environment

The Chinese government is pushing for rapid adoption of electric vehicles (EVs). China wants millions of EVs on its roads as quickly as possible. China is one of Rolls-Royce’s largest markets. The clampdown on emissions by the Chinese government is going to hit luxury car makers if they don’t produce EVs as soon as possible. This is why Rolls-Royce recently announced that it’s working on EVs to sell in China.

More than half of the world’s EVs are sold in China which recently hit 1.8 million in 2018. In 2017, China made 794,000 EVs and sold 777,000. That’s a 50% increase in the last year!

The price of lithium has sky-rocketed over 300% in just the last 3 years! Here is a lithium price chart I made for you.

That’s insane! Forget bitcoin. Lithium is the place to be and it has real value too.

The Lithium Cartel

Just four companies have a majority of market share right now. Albemarle Corp. is the market leader, with an 18 percent market share, followed by Jiangxi Ganfeng Lithium which has 17 percent, SQM at 14 percent share, and Tianqi at 12 percent share. A whopping 61 percent of the lithium market is controlled by these four companies. Everyone else makes up the other 39 percent.

These companies work together which is why they may just be the new OPEC like cartel of energy in the future. For example, the largest lithium mine in the world is the Greenbushes mine in Australia, which is a joint venture between Albemarle and Tianqi. This mine alone accounted for about 35 percent of global lithium carbonate supply last year.

Long time readers know that I’m always trying to identify cartels and monopolies because they make incredible long term investments. I think Albemarle fits the bill.

Revenue has grown by 15.66% in the past year which is awesome.

Measured over the last 5 years, revenue has been growing by 5.78% yearly.

Albemarle reported earnings on May 9, 2018. The company reported EPS of $1.30 versus the $1.20 estimate. Revenue also beat coming in at $821.6 million versus the $798.2 million estimate. Albemarle’s revenue was up 13.8% year-over-year.

Albemarle Stock

ALB stock chart with uptrending large players volume

The rising large players volume looks beautiful and confirms the increase in institutional ownership over the last 3 months. Prices have been consolidating lately. For long-term investors and position traders, there is a resistance zone just above the current price starting at $104.92. Right above this resistance zone may be a good entry point.

Premium members know I went long ALB stock today in my personal trading account today.

Albemarle Q1 2018 Earnings Call

Eric W. Norris, Albemarle Corporation – Chief Strategy Officer

Thank you, Jasmine, and welcome, everyone, to Albemarle’s First Quarter 2018 Earnings Conference Call. Our earnings were released after the close of the market yesterday. You’ll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at www.albemarle.com.

Joining me on the call today are Luke Kissam, Chairman and Chief Executive Officer; Scott Tozier, Chief Financial Officer; Raphael Crawford, President, Bromine Specialties; Silvio Ghyoot, President, Catalysts; and John Mitchell, President, Lithium.

As a reminder, some of the statements made during this conference call about the future actions or performance of the company as well as lithium demand may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about forward-looking statements contained in our press release. That same language applies to this call.

Please also note that our comments today regarding our financial results exclude nonoperating, nonrecurring and other unusual items. GAAP financial measures and reconciliations from those to the adjusted numbers discussed today may be found in our press release and the appendix of our earnings presentation, both of which are posted on our website.

Finally, as announced during the third quarter 2017 earnings conference call, we are now reporting segment revenues and earnings in a new format. Performance Catalyst, which previously had been consolidated with lithium, is now consolidated with Refining Solutions in a segment titled as Catalysts. Please refer to our 8-K filing of March 12, 2018, for the restatement of segment revenue and earnings in prior periods under this new reporting format. Also note that most external databases that provide consensus earnings estimates have not yet updated their estimates for this new segmentation format.

Now I’ll turn the call over to Luke.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Thanks, Eric, and good morning, everyone. I’m very pleased with our start to 2018, which highlights the growth of our Lithium business, the strong cash generation of our portfolio, the strength of our balance sheet and our ability to successfully execute our capital expansions in lithium.

First quarter net sales grew by 14%, and adjusted EBITDA grew by 18% over the prior year. Lithium delivered double-digit adjusted EBITDA growth of 31%, and both Bromine and Catalysts delivered solid results with strong cash flow. Our adjusted diluted earnings per share grew by 24% compared to the prior year.

Consistent with our efforts to manage the portfolio and maintain a strong balance sheet, we closed on the sale of our polyolefin catalysts and components business to W.R. Grace for a sum of $416 million on April 3.

Our lithium capital projects remain on track at a planned spending of between $550 million and $675 million for 2018.

Page 6 of the earnings presentation deck outlines the progression and timing of expansion plans for carbonate and hydroxide conversion capacity.

Let me provide a brief update on that project. We were in the construction phase for the Xinyu II lithium hydroxide expansion in China and plan to commission the plant in early 2019. During the second half of 2018, we expect to make electrical tie-ins in La Negra related to the expansion. La Negra II is on track to reach nameplate run rates in 2019, and we have moved from engineering to construction for the La Negra III/IV lithium carbonate expansion. We still expect to commission La Negra III in 2020.

In the Salar de Atacama, by the end of the fourth quarter 2018, we expect to reach the full pumping rate of 442 liters per second, which is the rate needed to supply the additional capacity in 2020. Engineering activities have commenced in Kemerton, Australia for a new lithium hydroxide plant with the expectations to commission the first 40,000 metric tons in 2021.

During the past quarter, we received approval from CORFO to increase our lithium production quota in Chile to as much as 145,000 metric tons of lithium carbonate equivalent. In parallel, we progressed engineering for our brine yield enhancement project in the Atacama and began feasibility work for additional lithium carbonate conversion capacity in Chile.

Now let’s look at lithium demand. During the past quarter, we outlined the assumptions behind our view of electric vehicle and lithium growth that we expect to result in a global market of over 80, 800,000 metric tons on an LCE basis by 2025. Those assumptions are on Page 7 of our earnings presentation deck. We continue to see validation of these demand assumptions. During the past few months, for example, both Volkswagen and Volvo made commitments to significant electrification of their vehicle fleet by 2025. These recent announcements are good indicators of not only the size of the investments along the value chain but also of the timing. Commitments throughout the supply chain are now being made for 2025 supply.

I’d like to use Volkswagen’s announcement as an illustration of what’s happening in the supply chain. To reach their targeted sales of 2 million to 3 million electric vehicles by 2025, Volkswagen announced that they expect to invest about $25 billion. Volkswagen will convert 9 production lines to electrical vehicles by 2020 and another 7 lines by 2022 for a total of 16 electric vehicle production lines. Volkswagen plans to contract for approximately 150 gigawatt hours of battery capacity per year to supply those lines. They have already awarded about $25 billion in battery contracts and expect to award additional supply contracts soon.

Battery cell producers are expected to invest between $9 billion and $12 billion to meet this 150 gigawatt-per-year supply commitment for Volkswagen. To put this in perspective, Tesla’s Nevada factory is targeted for 35 gigawatts of capacity at full rates. Using our assumptions for lithium intensity showed on Page 7 of the earnings presentation deck, 150 gigawatt hours equates to roughly 140,000 metric tons of new lithium capacity. That’s equivalent to about 2/3 of the 2017 global demand of about 220,000 metric tons. And this is for an OEM which had about 11% of the global auto market share in 2017.

Now Volkswagen may or may not hit their 2025 electric vehicle target, but the point of this illustration is that companies and supply chain need to lock up commitments for each critical raw material to meet this type of targeted growth. This dynamic should benefit lithium producers for years to come.

Albemarle has a track record of being able to build and operate large-scale production facilities that provide a reliable supply of high-purity derivative products. That track record, combined with our technical expertise and our ability to fund growth, makes us an ideal partner for the OEM supply chain. Others have tried to enter this supply chain in the past. To date, only the majors have consistently demonstrated an ability to supply the volume and the quality of electric vehicle-grade lithium required by the global OEM supply chain.

Before I turn the call over to Scott, I’d like to emphasize that our lithium expansion plans are not about market share gain. In fact, we expect that full implementation of our capacity expansions will result in Albemarle only maintaining its market share. Our strategy is to build out capacity to meet long-term commitments to our customers with full price economics that provide a strong return to our shareholders.

With that, I’ll turn the call over to Scott.

Scott A. Tozier, Albemarle Corporation – Executive VP & CFO

Thanks, Luke, and good morning, everyone. In the first quarter, we reported adjusted diluted earnings per share of $1.30, an increase of 24% compared to the first quarter of 2017. The increase was driven by an adjusted EBITDA increase of $31 million or about $0.21 per share from our Lithium business. Lower corporate cost and favorable foreign exchange contributed about $0.08 per share.

We continue to expect our 2018 effective tax rate, excluding special items, nonoperating pension and OPEB items, to trend toward the lower end of the previously provided range of 23% to 24%.

Operating working capital ended the quarter at 26.3% of sales, an increase from the fourth quarter of 2017. Capital expenditures during the first quarter were $132 million and will continue to ramp during 2018, reflecting growth capital deployment in our Lithium business. We continue to expect full year CapEx to range between $800 million and $900 million.

Net cash from operations was $122 million, which was about 50% ahead of first quarter 2017, and we still expect to end 2018 between $660 million and $730 million, more than double our 2017 results.

And finally, currency exchange rates compared to 2017 were a tailwind to adjusted EBITDA of about $6 million in the first quarter. Our 2017 average rate was just over $1.12 per euro, and Q1 2018 averaged about $1.22.

Now moving on to our business performance. Lithium sales increased by 38% compared to the first quarter of 2017, and adjusted EBITDA increased by 31% with adjusted EBITDA margins of 44%. Volume growth for the first quarter was 19%, with pricing improving by 14%, driven by the increasing demand from our contracted customers. All of our conversion facilities are operating at maximum rates as we work to bring additional capacity online.

In Bromine, first quarter sales of $226 million and adjusted EBITDA of $70 million were up 3% and 2%, respectively, compared to the first quarter of 2017. Adjusted EBITDA margins were strong at 31%. Sales growth was driven by moderate price increases, partially offset by freight and raw material costs and by lower volumes caused by constraints in elemental bromine, which we expect to continue through Q2. The market for flame retardants, primarily in electronics, automotive and construction, remained solid.

Catalysts reported first quarter net sales of $261 million and adjusted EBITDA of $68 million, resulting in adjusted EBITDA margins of 26%. Year-on-year adjusted EBITDA was negatively impacted due to a shortage of raw materials used in curatives and lower volumes in hydroprocessing catalysts or HPC catalysts. The decline was partially offset by gains in volume and price for fluid catalytic cracking, or FCC catalysts, which were both up about 2%.

And just as a reminder, Q1 included around $11 million from the polyolefin catalysts and components business that won’t continue in the future quarters.

Now I’ll turn the call back over to Luke.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Hey, thanks, Scott. As we look to the rest of 2018, lithium remains on an aggressive path to deliver at least 20% adjusted EBITDA growth during 2018. We expect second quarter EBITDA, I’m sorry, we expect lithium second quarter EBITDA to be sequentially stronger than Q1. Further, we anticipate a second half of 2018 that is fairly equal to the first half of lithium, with Q3 possibly weaker than Q4 due to downtime needed for the La Negra tie-ins.

In Catalysts, we continue to expect good EBITDA growth in our Refining Solutions business. However, curatives is expected to face pressure as a result of raw material challenges, which could unfavorably impact EBITDA by as much as $10 million for the full year. As a result, we expect full year adjusted EBITDA growth for the Catalysts segment to moderate to the mid-single digits. The favorable market trends in flame retardants are anticipated to continue in Bromine Specialties. And with the exception of the first half capacity constraints for elemental bromine and some derivatives, our plant continued to run very well.

Pricing and operational efficiencies are currently expected to offset higher cost for raw materials, freight and distribution. We now expect full year adjusted EBITDA growth in the low to mid-single digits on a percentage basis. The upside in Bromine Specialties is expected to offset the headwinds in the curative portion of Catalysts.

From a longer-term perspective, we believe that the Albemarle stock is currently undervalued. Hence, subject to market conditions, we intend to buy back $250 million of stock via an accelerated share repurchase program that was recently approved by our board. After completion of that program, approximately 10 million shares would remain under our current authorization, leaving ample headroom should we deem additional action to be warranted. The strength of our balance sheet, combined with the operating cash flow from our businesses, give us the confidence that we can take this action, execute our capital projects, maintain our long-term debt-to-EBITDA ratios and still have plenty of firepower leftover. In fact, absent any further corporate actions, such as M&A or additional stock buybacks, we expect to end 2018 at a net debt-to-EBITDA ratio of around 1x.

Given all of this, for the full year 2018, we now expect adjusted EPS to be between $5.10 and $5.40. I am confident that Albemarle is well positioned to maximize shareholder value in the short, medium and long term. We have a clear and straightforward strategy: Grow our lithium franchise, leverage our strong cash flow from Bromine and Catalysts and deliver very strong margins and returns on our capital growth investments. We believe we have the people, the balance sheet flexibility and the focus on execution to drive strong and profitable growth over the foreseeable future.

Q&A Session

Operator

Our first question comes from the line of Bob Koort with Goldman Sachs.

Dylan Scott Carter Campbell, Goldman Sachs Group Inc., Research Division – Research Analyst

This is Dylan Campbell on for Bob. Could you help bridge us to this 2 half 2018 lithium EBITDA is flat relative to first half 2018? I guess, taken into account what I would presume to be higher volume levels in 2018. And I guess, what would essentially offset those higher volumes in the second half of the year?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Dylan, this is John Mitchell. Yes, so for the second half of the year, we have what, we have baked into the second half what we think we have in terms of production. And also on the pricing side, our guidance hasn’t changed with regard to full year price effect of the high single-digit pricing. As we see more capacity coming online, we can adjust our expectations and guidance going forward.

Dylan Scott Carter Campbell, Goldman Sachs Group Inc., Research Division – Research Analyst

Got it. And then, I guess, after completing the sale of part of the PCS business in April, can you update us on, I guess, your strategic or your long-term strategic plans for the Catalysts and Bromine businesses, and how they fit into the long-term strategic plans of the consolidated business?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Sure. This is Luke. As we’ve talked about how each piece of this puzzle fits together, we need the free cash flow from the Bromine and Catalysts business to be able to [fund] the capital that we see in the growth of lithium. Lithium today [doesn’t] free cash flow in and of itself with the investments that we have. So we look at it and all those pieces fit together. Now there will be a point in time in the future where we’ll continually assess that portfolio to determine if that is the best path to drive shareholder value. We’ve not hesitated to make portfolio adjustments when we thought we could drive higher shareholder value by doing so, and we would continue that assessment on an ongoing basis.

Operator

And our next question comes from the line of P.J. Juvekar with Citi.

Scott Goldstein

This is Scott Goldstein on for P.J. Just maybe on the, I’m looking for more color on lithium pricing. How, it just seemed a little more modest than some of your, what your competitors realized. Can you maybe break out how much of the growth was from a change in mix? And how do you expect that mix to change for the remainder of 2018 and perhaps, 2019?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

This is John. So in terms of the product mix, most of our incremental additional volume is on the carbonate side. But I think the difference in pricing philosophy between the different-looking companies is really what’s driving differences in pricing guidance. Again, our focus on long-term contracts, we have certainly clear visibility in terms of the value of the products that we’re selling to customers. We want to make sure we’re taking a fair and balanced approach with our customers who are the leading cathode and battery producers in the world. And we are fixated on making sure that we have an excellent risk-adjusted return on our investments. And so our pricing guidance is essentially what’s baked into our long-term agreement, so we have good visibility in terms of our approach to pricing. The other benefit in terms of our approach is that we don’t see risk in terms of pricing going down. So we have very, we have good visibility in terms of stability of the pricing, and we do not expect our prices to be volatile in terms of going down; versus others in the lithium space have a different approach in terms of maybe trying to play spot-market pricing and other ways to look at pricing in the market.

Scott Goldstein

Okay. And maybe just a follow-up. So I think a little more than 80% of your lithium volumes are committed through long-term contracts. Can you just remind us how that trend has changed, maybe over the past year? And are you seeing more demand for longer-term contracts in your negotiations, currently?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Yes. Great question. In 2018, let’s say, actually, almost 100% of our volume is under long-term contract. We had moved our customer base to 3- to 5-year agreements, and now we see a strong pull from the leading providers of batteries and cathodes to go to as long as 10-year agreements. And the rationale for that is really around security of supply, and not just security of supply of any type of molecule, but security of supply of an EV grade that meets their specification for a battery that they can make a 10-year warranty on. So I think we have selected a really great basket of leading providers in the cathode and battery space. And we’re working together to plan the investments in lithium capacity for EV-grade batteries, and they’re planning to produce more cells for the OEMs. So we see our long-term agreements getting longer, towards 10 years.

Operator

And our next question comes from the line of David Begleiter with Deutsche Bank.

David Huang, Deutsche Bank AG, Research Division – Research Associate

I guess, first, on lithium, can you talk about maybe your updated views on lithium hydroxide versus carbonates? I guess, you previously said you wanted to be in both. But is there increasing preference for one or the other? And also, if you have any views on vertical integration and further consolidation of the sector.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

I’m going to let John take it first, and then I’ll talk about consolidation.

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Thanks, Luke. So with regard to preference on carbonate and hydroxide, again, the largest battery and cathode producers, depending on the type of battery that they’re producing for the specific application, they have a demand for both carbonate and hydroxide, and they’re able to forecast for both types of molecules. Of course, in terms of increasing energy density, there are many battery producers that are going to hydroxide in order to go to the high nickel-based or high metal-based cathode materials. So we do see, on a percentage basis, higher growth in hydroxide, but our long-term agreements have both carbonate and hydroxide in them, and we don’t see a decrease in demand for carbonate. We just see an acceleration of demand for hydroxide.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. If you look at consolidation, I think that there’s a lot of noise out there in the marketplace about consolidations up and down the value chain. And I think that just gives a signal to how tight it is and how people are scrambling to get the supply that they need in order to make their commitments throughout the chain. So we’re consistently looking. We believe we sit on the best resources in the world, the Salar de Atacama and our site in Western Australia. We have untapped resources in Kings Mountain, North Carolina as well as an option for resources in Argentina. We feel great about where we are from the geographic diversity as well as the brine and rock balance where we can go carbonate or hydroxide as the market dictates. So I think you’re going to see continual discussion out there in the marketplace about suppliers lining up with customers and their raw material suppliers. But we love the spot we’re in with our resources and with our customer contacts, so we feel like we’re partnered in the right area. And if those decisions should change and there would be an opportunity, as I’ve said before, our balance sheet gives us plenty of firepower to take actions that could strengthen even further our portfolio in the Lithium business.

YIfei Huang, Deutsche Bank AG, Research Division – Research Associate

And on refining, how is the traction on FCC price increases? And also, ex the curative impact.

Silvio Ghyoot, Albemarle Corporation – President of Catalysts Global Business Unit

Okay. It’s Silvio. Thanks for the question. The, as you know, the price increase for FCC is an ongoing exercise. It’s never finishing, but I can confirm that right now, we’re getting traction. One hand, still based on philosophy that we are trying to get the right price for the value we are providing to the refiner. On the other hand, the effort still offsets the inflationary pressure that we are facing. But the prices are holding.

Operator

And our next question comes from the line of Vincent Andrews with Morgan Stanley.

Vincent Stephen Andrews, Morgan Stanley, Research Division – MD

Just a clarifying question, and maybe it relates to the 3Q La Negra costs. I don’t know if you can size this for us at all. And I just, I assume the answer is yes, but do you still expect lithium margins for the full year to be up 40%? I just asked because it came out of this quarter’s slide versus last quarter’s.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. From a lithium margin standpoint, we still believe the full year will be above 40% from a margin standpoint. We’ve not laid out what the costs are in the third quarter, but we have an opportunity to come in and make tie-ins for that site, overall, that we’re going to need to do at some point in time. As I said in my prepared remarks, we, we’re going to be able to pump at full rates in the fourth quarter. We think it makes sense for us to go ahead and make these tie-ins now, so that whenever that brine we start pumping at full rates, those ponds get filled up. We won’t have to do it later in the year when we’ll have, later during 2019 or 2020 when we’ll have the full brine. So we believe it’s prudent to do that. It’s just a movement between quarters. It’s not going to impact the year in any way, but it could make third quarter weaker than the fourth. So that’s why we brought it up and let you guys know about it, Vincent.

Vincent Stephen Andrews, Morgan Stanley, Research Division – MD

All right. Very helpful. And just to follow up on the now-longer 10-year contracts that you have, is there anything different about, and I know this is sensitive, but anything different about the terms versus the existing contracts? And I guess, in particular, is there any sort of take-or-pay component to the longer contracts or anything different about your ability to adjust price or anything like that, that you can share?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. Philosophically, we kept the same approach that we have on contracts. The bigger difference is it’s a whole lot more volume.

Operator

And our next question comes from the line of Laurence Alexander with Jefferies.

Daniel Dalton Rizzo, Jefferies LLC, Research Division – Equity Analyst

It’s Dan Rizzo on for Laurence. So in terms of, I was wondering how much of the impact the change in the refinery activity due to the marine fuel standards will have on the refinery Catalysts business.

Silvio Ghyoot, Albemarle Corporation – President of Catalysts Global Business Unit

Okay. Are you referring to the gasoline standards?

Daniel Dalton Rizzo, Jefferies LLC, Research Division – Equity Analyst

Yes, correct, the marine fuel.

Silvio Ghyoot, Albemarle Corporation – President of Catalysts Global Business Unit

Okay. Oh, the marine fuel. Well, I’ll try to stay brief on that one. There is large amount of fuel oil that could not be used anymore in 2020, when those standards are coming on, and there are different tracks to address this. One could be that you have scrubbers in the boats, which you can often install overnight. So there will be a requirement of an additional amount of diesel or mid-distillates, hyper-treated mid-distillates, that is being added to the pool of marine fuel sold to the (inaudible) and to have, for the next couple of years, the boats sailing on not necessarily pure heavy fuel, but on blended fuels. That’s one of the ways to get there. Like I said, the other one is big infrastructure to clean the fuels on the boat. The future will tell us which direction it will ultimately be, but we can be firm that there will be an additional amount of diesel required around the 2019, 2020 period and maybe the year thereafter to address that sudden change in specifications.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

So Silvio gave you a detailed answer. At a high level, anytime there’s a regulation that tightens up the specifications from a diesel standpoint, it benefits of the hydro-treating part of our business. So we would expect that to be positive news for our HPC business in clean fuels.

Daniel Dalton Rizzo, Jefferies LLC, Research Division – Equity Analyst

Okay. And then you mentioned before that part of the Bromine and Catalysts business is really to generate cash for lithium growth. Would, that would suggest, I guess, that you’re not really going to be spending a lot of CapEx on those 2 businesses and just maintenance. And I was just wondering how much you have to spend yearly to kind of maintain what you’re doing there, or if you’re spending more to grow it as well.

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. So if you look at that business to start, both of those businesses, we’ve been able to run those businesses between 4% and 6% of revenue as a CapEx. Sometimes, it pops up below; sometimes it pops down below. We always have small projects to debottleneck or something that will allow us get a little extra yield that are cost-improvement projects, will really do paybacks, and we’re certainly continuing to do that. And we’ll continue to invest in those business to allow them to maintain their competitive edge. There’ll be debottlenecks that are necessary. There’ll be new wells drilled in Magnolia that are necessary. There’ll be additional FCC capacity that we would, may need to bring online for some debottlenecks to be able to serve our customers. So we’re going to continue to do that to keep those businesses strong because they’re great businesses with good EBITDA margins. But we’re blessed in the fact that they have high margins, low capital requirements, and we’re able to harvest that cash and put it in our organic growth for lithium.

Operator

And our next question comes from the line of John Roberts with UBS.

John Ezekiel E. Roberts, UBS Investment Bank, Research Division – Executive Director and Equity Research Analyst, Chemicals

Sorry, I jumped in late. But the slide with EV penetration in lithium, obviously, there’s no correlation in that chart. Is that more because of the different assumptions on average battery size for full electrics? Or is it different assumptions on HEV penetration? Or maybe you could comment a little bit on what’s driving that variation, but the results, obviously, no correlation there.

Eric W. Norris, Albemarle Corporation – Chief Strategy Officer

John, this is Eric speaking. I, the answer to your question is, unfortunately, yes, right? I mean, the dispersion that’s shown in that slide estimate comes from, as we look at those models, the penetration differences between the amount of full electric versus hybrid, plug-in hybrid electric. It also comes from battery sizes, depending on the analyst and the firm providing that. And in some cases, it comes from lithium content, believe it or not. So it does come from all 3, and it’s one of the reasons we’ve put this slide out is because I think it’s important for you to know the assumptions we believe, which are based on a platform-by-platform, OEM-by-OEM basis that are built up. Does that answer your question? John?

Operator

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets.

Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division – Analyst

Maybe you can just give us an update on, I appreciate the update on demand, and maybe if you could just give us an update on what you’re seeing on the supply side as well. There were some issues with weather earlier this year in Latin America, Chile and Argentina. Was that effective negative for you guys or not? And then secondarily, just update on your projects as well as what you’re seeing from competitors.

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Okay. Thanks. This is John. With regard to the weather comment, no impact on Albemarle operations with regard to weather so far in 2018. We’ve also taken some added steps as mitigation in the event there are any rain events, particularly in the Atacama, so I think we’re well prepared. With regard to the overall supply dynamic in the marketplace in 2018, it’s as expected. As we track all the projects around the world going forward beyond 2018, nothing new that changes our supply/demand outlook. As we look at the materials that are required for our customers, which are EV-grade Performance Materials, carbonate and hydroxide, we feel that the market remains in balance through 2021 and don’t see any increase in supply that gives us any concerns in terms of oversupply dynamic, et cetera. Even if there were issues with regard to oversupply, we have long-term agreements. That does not affect Albemarle in terms of its own supply/demand dynamic as we are contracted with the market leaders going forward. So you’re not going to see any impact regarding supply/demand dynamic in Albemarle’s pricing.

Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division – Analyst

Great. And as a follow-up, there has been recently some plateauing, it looks like, in carbonate prices. So I guess, the right read is we shouldn’t assume that impacts you. And even so, maybe you can just describe what you think that resulted from, the difference between carbonate and hydroxide pricing?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

So in terms of the marketplace and the differences between carbonate and hydroxide, hydroxide has always been sold at a higher price given the cost buildup of hydroxide versus carbonate. Certainly, around the world, as different producers are going into new resources, the cost structure of their products will change because every natural resource around the world is different. The cost to mine, the cost to extract, the cost to refine and the cost to make a specialty product is going to vary. So looking back in terms of historical norms, it’s a little bit faulty as we go forward and we’re bringing on more and more capacity. I don’t think that there’s going to be any kind of, I don’t know if you’re alluding to a contraction in terms of hydroxide and carbonate price. We certainly don’t see it. And again, our pricing models are based on pricing to value and also pricing to the specific terms and conditions in terms of our long-term agreements.

Operator

And our next question comes from the line of Aleksey Yefremov with Nomura.

Aleksey V. Yefremov, Nomura Securities Co. Ltd., Research Division – VP

I think in the, during the fourth quarter earnings call, you were talking about high single-digit lithium price increase expectations for 2018. Has this changed in any way?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

No, it’s not changed. We’re just saying that we’re higher in the first quarter. But as you go through the year, we’ll be lower on a year-over-year comparison, so we’ll end the year about where we thought we would.

Aleksey V. Yefremov, Nomura Securities Co. Ltd., Research Division – VP

Luke, and Xinyu II 2018 hydroxide commissioning in 2019, is there a qualification period or a ramp period? So in practical terms, what should we think about, how should we think about EBITDA contribution at a full rate? Is it by the middle of ’19, by the end of ’19?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Yes, this is John. Yes, you should think that there is the qualification period for Xinyu II. So as we start commissioning and producing product, that quality then we have to ship quantities to our customers, and they’re going to have to qualify that facility, that production facility. And so I think you should look at mid-2019 in terms of getting to full rates.

Operator

And our next question comes from the line of Colin Rusch with Oppenheimer.

Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst

What are you seeing in terms of the number of customers, potential customers, for lithium versus a quarter ago or 2 quarters ago? Are you seeing an increase, decrease, kind of flattish, just in terms of volume of customers?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. It’s about the same number of customers from a material stand, there hasn’t been that many new entrants into that cathode production. We’re dealing with the big players, and it hasn’t changed over the last 12 months.

Colin William Rusch, Oppenheimer & Co. Inc., Research Division – MD and Senior Analyst

Okay. And then in terms of moving volumes around and customers taking all the volumes, are you seeing any movement from one customer to another customer or folks not taking in volumes or asking for incremental volumes versus their contracts on a regular basis?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. It’s all over the map. As a general rule, we haven’t seen a customer who’s not saying we don’t want what we’ve committed. We’ve, all our customers are saying we want more.

Operator

And our next question comes from the line of Kevin McCarthy with Vertical Research.

Kevin William McCarthy, Vertical Research Partners, LLC – Partner

I was wondering if you could provide some thoughts on the potential for a shift in the battery market to solid-state technology. Do you anticipate that? If so, what would be the associated timing and your level of confidence? And importantly, what might it mean for an uplift in lithium demand?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

This is John, great question regarding solid-state battery technology. With regard to an uplift in lithium demand, yes, because solid-state battery technology has more lithium molecules in it to increase energy density. And so yes, we would see an uplift in lithium demand as the market goes to solid state. Regarding time lines, although we’re seeing an increase in R&D activity and product development activity, in terms of commercial application, we see it more as a 5- to 10-year horizon regarding solid state.

Kevin William McCarthy, Vertical Research Partners, LLC – Partner

Very good. And then I had a question on your lithium EBITDA margin. If I look at it on a sequential basis, your level of 44.0% improved about 300 basis points from what you posted in the fourth quarter of 2017. And it looks like you managed that notwithstanding a smaller contribution from price. And so I was wondering if you could help us understand some of the moving parts there. Was there a shift in mix or cost considerations that helped to explain that?

John Mitchell, Albemarle Corporation – President of Lithium & Advanced Materials

Yes. Well, there are a few things that are always going on in the Lithium business. I mean, certainly, there is a mix issue. There’s the, there’s mix of products. There’s mix of customers and pricing. We are always also working on productivity improvements in terms of the ongoing operations and the cost structure. But then you have a couple of different elements, one on the natural resource side, whereas we do exploration efforts, there are certain costs that cannot be capitalized, and so we have to take them to the expense line. Also on the refinery assets, there are certain costs that as you’re developing, you start the early-stage engineering on different projects, there are costs that, again, you have to drop to the expense line versus capitalization. So there are a number of moving pieces. And as we said, from time to time, we’ll see fluctuation in the margin in that low to mid-40 range, but you should count on us averaging out in the lower 40s.

Operator

And we do have Mr. Joel Jackson back on the line with BMO Capital Markets.

Joel Jackson, BMO Capital Markets Equity Research – Director of Fertilizer Research

So one of your bromine competitors this morning indicated that they’re seeing double-digit price increases on some 1-year contracts that they’re signing on elemental bromine and bromine derivatives. Are you seeing similar pickup on some of your pricing right now on contracts? And I guess there’s some cost offsets, maybe you could talk about both of those.

Raphael Crawford, Albemarle Corporation – President of Bromine Specialties

Joel, this is Raphael Crawford. We do see an increase in the number of contracts that we have with our customers versus prior year. So because of the tighter situation on bromine, not necessarily elemental bromine, that’s actually a very small piece of our portfolio, but on the derivatives, mainly flame retardants, we are signing more contracts with price increases. The amount of the price increase really depends on the specific product and the specific market, but it has been favorable. In these type of market situations, we have been able to raise price, get more volume under contract and where possible, also get more favorable terms with our customers.

Joel Jackson, BMO Capital Markets Equity Research – Director of Fertilizer Research

I had a second question, it’s a bit nitpicky. But in your prior presentation, you talked about 2025 lithium demand being about, greater than 800,000 tonnes, and now you’re saying 800,000 tonnes. Again, this is nitpicky. It’s many years from now, it’s a big number. But any reason why you changed that wording, that estimate?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. It’s around 800,000 metric tons. I mean, I can’t, within the range of what it is, don’t read anything into that at all, okay? Our range is around 800,000 metric tons, and all I can tell you, if we do it in another year, when we come out with these numbers, it’ll be different because it’s so early in the S curve and it’s so early in the adoption that we’re giving the information that we have on Page 7 of our presentation so that every shareholder and every analyst understands what’s in our number, so that you can make your own judgment as to where we are. We believe we’re taking the best approach we can, but don’t split words or at or over or about or any of that. It’s just that’s the range that we think it’s going to be, and there’s nothing to be read into that.

Operator

And our next question comes from the line of Chris Kapsch with Loop Capital Markets.

Christopher John Kapsch, Loop Capital Markets LLC, Research Division – MD

I had a follow-up on the hydroxide versus carbonate discussion and really, in the context of your CapEx plans as you build out your conversion capacity. So when your customers contract with you on these longer-term agreements, I assume they specify what grades they think they’re going to want. And I’m just wondering how much wiggle room do they have to shift. For example, if their demand for the batteries or the model shifts more towards those designs that take hydroxide, do they have wiggle room to shift that? And then how much latitude do you have to adjust your conversion capacity build-out plans?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Well, if you look out to 2021, we’ve said, and you look at the presentation on Page 6 of our present, of our earnings deck, you’ll see we’re at about 85,000 met tons of carbonate and about 80,000 met tons of hydroxide by 2021. So that gives us, we’re very well balanced on hydroxide and carbonate. The contracts specify the, how much carbonate they want and how much hydroxide they want. So once they do that, you have to be able to do that for planning purposes because if you’re going to build a carbonate plant versus build a hydroxide plant, you need to know in advance. So we’re trying to build in some flexibility there, but their, the customers, they’re planning for models that are going to be 3 and 5 years out. So they have a good visibility for that period of time, whether they’re going to use carbonate or hydroxide, and they don’t have a problem in telling us for that level or that amount of time, what they expect their demands are going to be for this specific product.

Christopher John Kapsch, Loop Capital Markets LLC, Research Division – MD

Okay. So, and then just a follow-up, the notion that some of these agreements are shifting from, call it, 3 to 5 years, to as long as 10 years, are those additional battery customers that are coming in saying, “Hey, we want a 10-year,” or is it the same ones that contracted for 5 years are saying, “Hey, we’re, we have a better understanding of how this market is developing, and we’d like to change the terms and extend it to 10 years?”

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

As I said, it’s generally the same customers that are extending their contracts. There may be 1 or 2 new ones around the edge, but as a general rule, it’s the same customers.

Christopher John Kapsch, Loop Capital Markets LLC, Research Division – MD

Okay. And then just one last one. Any update on the efficacy of your new brine extraction technology?

Luther C. Kissam, Albemarle Corporation – Chairman, President & CEO

Yes. We’re meeting the metrics that we anticipated meeting. It’s going well. And we still believe that that’s a viable project, and we’ll continue pursuing it.

Operator

And our final question comes from the line of Jim Sheehan with SunTrust.

Peter Osterland, SunTrust Robinson Humphrey, Inc., Research Division – Associate

This is Pete Osterland on for Jim. What is the raw material involved in the shortage for curatives? And broadly speaking, who are the main buyers of the impacted products?

Silvio Ghyoot, Albemarle Corporation – President of Catalysts Global Business Unit

This is Silvio. If you see that our curatives are always on top, you mean the amines, so it’s pretty easy to figure out what the shortage is. It has to do, there are a handful of bench producers of this material all over the world, and the shortage is caused by some major turnaround and changes in the upstream manufacturing facilities. So it’s something that is temporary. Like we have in our earnings call, we are expecting that it’s going to have an effect of $10 million-ish on a yearly basis.

Eric W. Norris, Albemarle Corporation – Chief Strategy Officer

Okay. Thank you, everyone. We appreciate the questions and look forward to meeting with many of you over the coming quarter.